Washington - In a shocking development Monday that plunged the United States back into uncertainty, the US House of Representatives rejected a massive government plan to rescue the economy from the brink of financial meltdown.

The House voted 228-205 against the bill. Republicans led the opposition, voting 2-1 against the 700-billion-dollar bail-out plan.

The rejection comes despite dire warnings and support for the bill from congressional leaders of both political parties, as well as US President George W Bush.

US stocks plunged on the news. The Dow Jones Industrial Average was down more than 550 points.

Congressional leaders and White House officials thought they had forged an agreement Sunday after nine days of tough negotiations. But lower-level legislators in both parties derailed the process, resenting the need to put taxpayer money on the line to bail out greedy Wall Street investors.

The bill was intended to thaw out frozen credit lines with the government purchase of up to 700-billion-dollars worth of soured mortgage-backed securities. It included a "repayment clause," under which Wall Street would have to find a way to pay the money back if the assets' value did not recover in five years.

Leaders from both parties had recognized the legislation was an incredibly bitter pill to swallow and one of the most difficult decisions Congress would ever make, coming just one month before the US general election.

But the bill's supporters, during a spirited four-hour debate in the chamber, said it was the only means of preventing credit from drying up and bringing the economy to a crashing halt.

"Nobody wants to vote for this. Nobody wants to be anywhere around it," said Republican Minority Leader John Boehner. "If I didn't think we were on the brink of an economic disaster, it would be the easiest thing in the world for me to say no to this."

Conservative House Republicans were the main roadblock to the rescue plan, voting against it by 133-65. Opponents demanded that Wall Street carry more of the burden and called it an unnecessary intervention into the free market.

"We can't allow the American taxpayer to become the insurance policy for financial decisions that didn't quite turn out as planned," said Gresham Barrett, a Republican congressman from South Carolina. "I fear that this legislation erodes that accountability and the freedom that comes with it."

Bush had made a final plea Monday for Congress to approve the Emergency Economic Stabilization Act, which he called "a bold bill that will help keep the crisis in our financial system from spreading throughout our economy."

Bush said the bill would address the "root causes" of a financial crisis that has already led to two of the largest bankruptcies in US history - Lehman Brothers Holdings Inc and Washington Mutual Inc - as well as a series of government takeovers.

During week-long negotiations on the 700-billion-dollar proposal, legislators reduced the initial cost to 350 billion dollars with the remainder to be authorized later.

Other changes to the plan originally drafted by US Treasury Secretary Henry Paulson included curbs on executive pay and severance, so-called golden parachutes, for top officials at companies that seek to sell mortgage securities to the federal government.

The government would also have the option of taking equity stakes in some firms to allow taxpayers to recover some of the bail-out costs in cases in which federal help leads to eventual profits or higher stock prices.

Credit has seized up across the US economy as lenders became reluctant to dish out new loans during a crisis sparked by losses on subprime mortgages. Supporters of the bill said it was the only way to keep that credit - the backbone of the US economy - flowing smoothly.

Bush, who has less than four months in office, has little remaining clout with his fellow Republicans in Congress, who already blame his low approval ratings for their loss of a majority in congressional elections two years ago.

Democrats were also worried about the political fallout of the unpopular Wall Street bail-out as expressed by constituents via angry e-mails and phone calls to legislators.